Jane Diplock AO
Chairman
22 May 2009
Keitha Dunstan
Chairman Audit and Risk Review Committee
22 May 2009
Laid before the House of Representatives pursuant to
section 149 of the Crown Entities Act 2004
Contents
National environment - New Zealand's securities and financial markets
Nature and scope of our functions and intended operations
Outcomes, objectives, impacts and outputs
Delivering outputs for the 3 years to 30 June 2012
Market surveillance and enforcement
International cooperation and recognition
Possible changes to our operating environment
Effectiveness and managing organisational health
Preparing for the effects of new law
Collaboration on organisational health and capability building
Financial control and acquisition processes
Consultation and reporting to the Minister of Commerce
ANNUAL INFORMATION - FOR THE 2009/2010 YEAR
Statement of forecast financial performance
The Securities Commission is established under the Securities Act 1978 which defines its powers and functions as New Zealand's main regulator of securities.
The Commission is an independent Crown entity in terms of the Crown Entities Act 2004, and the information contained in this Statement of Intent is prepared in accordance with sections 141 and 142 of the Crown Entities Act 2004. The prospective financial statements have been prepared in accordance with NZ IFRS. They have been developed for the purpose of tabling the Commission's intentions in the House of Representatives and should not be relied on by any other party for any alternative purpose. Actual results are likely to be different from the prospective financial statements and the variation may be material.
We are responsible for the preparation of this Statement of Intent, including the forecast financial statements and the assumptions on which they are based, the statement of forecast service performance, and for the judgements used in them.
|
Jane Diplock AO Chairman 22 May 2009 |
Keitha Dunstan Chairman Audit and Risk Review Committee 22 May 2009 |
Commission Members are appointed by the Governor-General on the recommendation of the Minister of Commerce. They are usually appointed for five years, and may be reappointed. Members are chosen for their knowledge and experience of the securities markets. One Member must be an experienced lawyer.
Currently there are ten Members. The Chairman works full time. The other nine Members attend one full Commission meeting per month and meet in divisions as required to handle the business of the Commission. Divisions have the full powers of the Commission. Profiles of Commission Members are published at www.seccom.govt.nz/about/#6.
We estimate 44 staff on 30 June 2009 including lawyers, accountants, investigators and support staff. We work in cross-disciplinary teams to deal with particular matters.
The nature and scope of our functions and operations are defined by the Securities Act 1978 which establishes the Commission. They include:
To perform these functions we have a number of powers, including:
For other legislation the Commission works with see www.seccom.govt.nz/about/laws.shtml.
The Commission has two classes of output:
In relation to the performance of securities market functions, the Commission has identified five outcomes that will benefit the New Zealand securities markets, namely:
The Commission contributes to, or impacts on, these outcomes through its short and medium term objectives. These objectives are measurable and will determine the Commission's work during the term of this Statement of Intent. The work will be delivered via the Commission's outputs which align with the functions for which the Commission is funded through the Vote Commerce.
The Securities Commission litigation fund contributes to the achievement of our enforcement objectives and the associated outcome.
The Commission has a planning process which culminates in a three-year strategic plan. This enables the Commission to efficiently allocate its resources and to set its work priorities. The strategic plan is kept under review during the year and formally reviewed when a new Statement of Intent is prepared. The strategic plan for the three years to 30 June 2012 sets out the detailed work to be undertaken (under each output) to achieve all the objectives, including the work arising from the objectives highlighted in this Statement of Intent. This work will contribute to the outcomes the Commission seeks for New Zealand's securities markets. The details of this work, and how performance will be measured, are provided in the Statement of Forecast Service Performance on page 32 of this Statement of Intent.
The diagram shows the linkages between outcomes, objectives, impacts and outputs.
Major reforms to securities law have been enacted and are being implemented (Financial Advisers Act) while further reforms are still under consideration by the Government. These reforms will add significantly to the role and responsibilities of the Commission. Some of these, including the Financial Advisers regime, will be in place during the period of this Statement of Intent. Others may not take effect until later, but the Commission is planning for these so it will be ready to fulfil its future roles.
The Commission has amended and agreed on its outputs to meet the possible requirements of Government and to alert the Minister to the anticipated costs of any additional responsibilities it may be required to assume. They are:
The Government's current reform project relating to Anti Money Laundering and Countering the Financing of Terrorism (AML/CFT ) proposes a supervisory role for the Commission. As the new law may be in force during the period of this Statement of Intent, the following chart includes a potential new outcome and output relating to AML/CFT supervision.
The Commission's outputs under the Crown Entities Act define our work. Each output is described below together with the outcome it contributes to, the objectives to be achieved and the measures of achievement. These are the Commission's main non-financial measures for the period of this Statement of Intent.
As well, following each output the Commission has set a medium term measure of its impact on the relevant outcome.
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Outcome |
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Output 1 Market surveillance and enforcement Monitoring securities market activity, inquiring into suspected breaches of securities law and taking actions to enforce the law |
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| Objectives | Measures |
|
The Commission will have achieved its Surveillance and Enforcement objectives when
and
and
|
Medium term performance towards the outcome
High standards of conduct are expected in the markets and the law is complied with
The impact of our surveillance and enforcement work on this outcome will be indicated if follow up assessments after reviews and enforcement action show improved compliance with the law.
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Outcome |
|
Output 2 Oversight and supervisiont |
|
| Objectives | Measures |
|
|
Medium term performance towards the outcome
High standards of conduct are expected in the markets and the law is complied with
The impact of our work in oversight and supervision on this outcome will be indicated if
|
Outcome |
|
Output 3 Law and practice reform |
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| Objectives | Measures |
|
The Commission will have achieved its Law and Practice Reform objectives when
and
|
Medium term performance towards the outcome
The regulatory environment is relevant and effective
The impact of our law reform work on this outcome will be indicated if laws are enacted to address shortcomings identified to Government by the Securities Commission.
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Outcome |
|
Output 4: Exemptions and authorisations |
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| Objectives | Measures |
|
The Commission will have achieved its Exemptions and Authorisations objectives when it has
and
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Medium term performance towards the outcome
Securities law regimes are tailored to the needs of the markets
The impact of our exemptions and authorisations work on this outcome will be indicated if five yearly reviews and consultation on class exemptions notices indicate that these are relevant and useful to market participants.
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Outcome |
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Output 5 International cooperation and recognition
|
|
| Objectives | Measures |
|
The Commission will have achieved its international cooperation and recognition objectives when it has
and
and
and
and promoted the development of the New Zealand capital markets |
Medium term performance towards the outcome
New Zealand’s markets and regulatory environment are respected internationally, creating a climate for increased investment and good relationships with overseas regulators
The impact of our international work on this outcome will be indicated if cooperation is forthcoming from other regulators when needed for our enforcement work.
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Outcome |
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Output 6 Public understanding |
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| Objectives | Measures |
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Investors and potential investors, intermediaries and market participants understand securities law and securities market practices that are applicable to them The public and news media are aware of the work and views of the Commission Communications maximize regulatory impact |
The Commission will have achieved its Public Understanding Objectives when
and
|
Medium term performance towards the outcome
People understand the law and practice relating to securities
The impact of our public understandingwork on this outcome will be indicated if our communications initiatives succeed in delivering information to their target audiences
The Commission's stakeholders are:
Our policy on stakeholders is published at www.seccom.govt.nz/about/stakeholder-policy.shtml
We work with the Minister of Commerce and the Ministry of Economic Development, in accordance with our statutory functions and powers, on policy, regulatory matters, law reform, and appropriations. We report to the Minister under the Crown Entities Act.
We work with the Ministry of Foreign Affairs and Trade and New Zealand Trade and Enterprise in relation to our international activities.
Under the Securities Markets Act we have a co-regulatory role with the NZX over the markets operated by that exchange. NZX is currently the sole registered exchange in New Zealand.
Under proposed new responsibilities the Commission may supervise trustees.
We also work with other government agencies including the Registrar of Companies, Reserve Bank of New Zealand, Serious Fraud Office, Parliamentary Counsel Office, Commerce Commission, Retirement Commission, Police, State Services Commission, as appropriate and in accordance with our statutory functions and powers.
We work with overseas securities regulators and agencies in accordance with the IOSCO MMOU, bilateral MOUs and applicable law.
We also work with a variety of industry organisations and professional bodies.
The Commission will adhere to the principles of the Stakeholders Policy when dealing with stakeholders, including acting with a high degree of professionalism and skill. The Commission will be aware of the responsibilities of other regulators of the financial markets and will work with them to achieve well-regulated securities markets. The Commission will communicate with other New Zealand regulators to achieve mutual goals and to maximise efficiencies and minimise duplication of effort.
Aspects of securities regulation are currently under review by Government (see Legislative environment). Reforms arising from these reviews may give the Commission additional responsibilities within the period of this Statement of Intent. Meeting any such responsibilities may mean changes to the Commission's operating environment.
The Commission has set a main financial measure for the period of this Statement of Intent, which aligns with the Value-for-Money Development Goal for the State Services.
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Financial objective To carry out its strategic plan on time and within budget and resources |
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Financial measure |
The Financial Advisers Act introduces new responsibilities which will have a profound effect on the work and structure of the Commission. A key focus for the Commission is to bring this regime into operation as soon as possible as early implementation is important to restore investor confidence. The Commission has been consulting with the industry and the education sector, both of which will play a key role in assisting with implementation.
This Statement of Intent also identifies several intended reform programmes that are expected to affect the Commission and the scope of its role and functions (see Legislative environment).
A challenge for the Commission in the term of this Statement of Intent will be to continue to meet its current objectives while ensuring that it fulfil its new roles.
The Commission developed a risk management framework following a study by external consultants in 2004. This identified the key areas of our capability and risks to these. The main risks relate to staff (recruitment, key personnel, and retention), physical event/disaster, reputation, confidentiality of information and knowledge available. The Commission has developed responses to these as described below.
Staff
Staff numbers have increased from 22 in 2002 to 44 in 2009. A risk for the Commission is that it may not be able to recruit suitably qualified staff. The Commission counters this by boosting graduate recruitment, intensifying overseas recruitment, and targeting New Zealand recruitment campaigns effectively. To date the Commission has managed to recruit as required for its increased responsibilities.
We seek to minimise the risks associated with retention of staff by our commitment to being a good employer. The Commission was placed 13th in the small employer category (up to 49 staff) of the Unlimited/JRA Best Places to Work in New Zealand Survey in 2008. We use this to measure our organisational health and our performance as an employer. Staff complete anonymous surveys under the headings:
Culture and values
Communication and cooperation
Individual's jobs
Performance and recognition
Common purpose
My team
Learning and development
Overall perceptions of the organisation.
Our objective over the next three years is to keep our status as a good employer by continuing our values-based culture, maintaining high professional standards, being responsive to staff feedback, and continuing the human resource practices that have proven effective. The Commission will continue to use the Unlimited/JRA Best Places to Work in New Zealand Survey to measure its performance as a good employer.
Physical event/disaster
The Commission's offices are code compliant under section 95 of the Building Act 2004. Our earthquake and disaster plan includes emergency food, water and first aid supplies, staff trained in first aid, and document and IT recovery systems. Some staff have access to the Commission's computer network enabling them to work from home.
Reputation and integrity
The Commission promotes high ethical standards in the securities markets. If it is to succeed in this, and thereby strengthen confidence in the integrity of New Zealand's capital markets, it is essential that people have confidence in the integrity of the Commission itself.
The Commission must maintain a good reputation both for quality of work and integrity of approach. Much of our work is highly sensitive and confidentiality must be maintained. These risks are managed through the Values and the Code of Ethics we have adopted as an organisation.
Our values
Integrity
We set ourselves the highest professional and ethical standards.
Excellence
We are committed to achieving the highest standards in our work.
Collegiality
We work as a team. We are considerate, supportive, reliable and friendly.
Dynamism
We set goals and work to achieve them. We are proactive and open to ideas.
Responsiveness
We observe and listen. We communicate clearly.
Fairness
We act fairly, firmly and courageously.
The code of ethical standards and behaviour expected of Commission Members and staff is published at www.seccom.govt.nz/about/code-of-ethics.shtml
The setting and publishing of these values and standards, and monitoring compliance by Members and staff, aligns with:
Confidentiality of information
To mitigate risks relating to confidentiality of information, staff and Members sign a confidentiality agreement when starting work with the Commission. The importance of confidentiality of information is stressed in the recruitment and induction processes. Security around IT systems and files is robust and effective physical security is in place at the Commission's office particularly as capacity expands to handle financial adviser responsibilities.
Knowledge available
The Commission's document management and records systems make institutional knowledge available and the induction processes explain how to access these. The Commission's team structure is conducive to effective knowledge sharing.
The Commission continues to collaborate with these agencies for its organisational capability and health initiatives:
The Commission has policies for expenditure, financial delegations, and acquisitions. The financial delegation policy requires all expenditure to be within set delegations, or subject to prior approval by the Commission. Detailed planning and management procedures based on the Auditor-General's guidelines must be followed for significant acquisitions and for planning and managing litigation expenditure.
After several years of building reserves, the Commission is forecasting deficits for 2008/09 and 2009/10 to fund greater work on its existing class of outputs. The deficits will fund greater operational workloads arising mainly from financial reporting, increasing complexity of matters, international recognition and risk management. For the litigation fund, the Commission is forecasting expenditure within appropriation.
With the Commission's increased functions and its new role related to financial advisers, the Ministry of Economic Development has retained KPMG to conduct an independent review of the Commission's baseline funding. The review is intended to ensure that the Commission has the required resources to carry out the functions required of it under existing and new legislation.
The expanded responsibilities for the Commission arising from the Financial Advisers Act have necessitated a reassessment of the Commission's base infrastructure. The likely doubling of staff numbers, the possible opening of an Auckland office, and the need for computer systems to deal with authorisation and monitoring of financial advisers require the Commission to reshape significantly. Importantly, much of this is intended to be funded on a 'user-pays' basis with industry fees and/or levies being introduced. In preparation for this MED has also retained KPMG to conduct a review of Commission fees.
The Financial Advisers Act implementation has funding implications beyond the Securities Commission and its Vote Commerce appropriation, affecting other commerce related agencies. There are funding implications for the Registrar of Companies for the registration infrastructure, the Ministry of Consumer Affairs for a dispute resolution framework and the NZQA for realignments in the tertiary education system for providing competency assessment and training services across the country.
The Commission provides administrative and support services to the Takeovers Panel in accordance with the Securities Act and under the terms of an MOU. For each financial year the Commission and Panel agree on the level of services required and on the fees to be paid for them. The income received from the Panel and the costs of providing these services are included in the financial statements. When it has secured extra funding, the Panel will relocate to separate premises at which time the shared operating arrangements currently in place will cease. This is expected in 2009/10.
The Minister of Commerce is the Commission's responsible Minister, and the Ministry of Economic Development is the monitoring department.
The Commission acts independently of Government and others except as required by the Securities Act 1978 or the Crown Entities Act 2004.
There are no matters on which the Commission is required to consult or notify the responsible Minister before exercising its statutory functions and powers. However, we work with the Minister and Ministry in accordance with our statutory functions and powers on policy, regulatory matters, law reform and appropriations.
The Commission consults with the Minister on the preparation of the Statement of Intent, and reports to the Minister quarterly and in the annual report.
2009/10 Vote Commerce $000 |
2008/9 Estimates $000 |
|
|---|---|---|
| Non-departmental output expenses This appropriation is limited to the performance of statutory functions by the Securities Commission |
9,121 |
7,301 |
Non-departmental capital expenditure |
600 |
- |
Other expenses to be incurred by the Crown |
1,370 |
1,370 |
Further information is available in B5 of Budget 2009 - Estimates of Appropriation for the Government of New Zealand for the year ending 30 June 2010.
| 2009/10 Forecast $000 |
2008/9 Estimate $000 |
|
|---|---|---|
| Income | ||
| Government grant | 9,121 |
7,301 |
| Administrative services to Takeovers Panel | 96 |
494 |
| Exemptions and authorisations fees | 250 |
260 |
| Interest | 75 |
163 |
| Miscellaneous | 28 |
- |
| Litigation fund income - government grant & bank interest | 844 |
655 |
| Total income | 10,414 |
8,873 |
| Expense | ||
| Personnel expenses | 6,934 |
5,325 |
| Occupancy expenses | 709 |
642 |
| Depreciation | 449 |
342 |
| Other operating expenses | 2,553 |
2,241 |
| Litigation fund expense | 844 |
611 |
| Total expense | 11,489 |
9,161 |
| Deficit and total comprehensive income | (1,075) |
(288) |
| |
|
|
| Comprising | ||
| Operating deficit | (1,075) |
(332) |
| Litigation surplus | - |
44 |
| (1,075) |
(288) |
Accumulated funds |
Litigation fund |
Total equity |
|
|---|---|---|---|
| $000 | $000 | $000 | |
| Actual at 1 July 2008 | 2,696 |
2,866 |
5,562 |
| Total estimated comprehensive income | (332) | 44 | (288) |
| Repayment of litigation fund capital | - | (2,066) | (2,066) |
| Estimate at 30 June 2009 | 2,364 | 844 | 3,208 |
| Total forecast comprehensive income for the year | (1,075) |
- |
(1,075) |
| Forecast at 30 June 2010 | 1,289 |
844 | 2,133 |
2009/10 Forecast $000 |
2008/09 Estimate $000 |
|
|---|---|---|
| Equity | ||
| Accumulated funds | 1,289 | 2,364 |
| Litigation fund | 844 | 844 |
| 2,133 | 3,208 | |
| Assets | ||
| Current assets | 1,070 | 2,539 |
| Non-current assets | ||
| - property, plant and equipment | 1,593 | 1,192 |
| - computer software | ||
| Liabilities | ||
| Current liabilities | 509 |
489 |
| Non-current liabilities | 21 |
34 |
| Net assets | 2,133 |
3,208 |
2009/10 Forecast $000 |
2008/09 Estimate $000 |
|
|---|---|---|
| Cash flows from operating activities | ||
| Cash was provided from | ||
| - Government grant | 9,121 | 7,301 |
| - Government grant - litigation fund | 1,350 | - |
| - Settlement from Tranz Rail – litigation fund | - | 2,091 |
| - Exemptions and authorisation fees | 255 | 285 |
| - Miscellaneous | 28 | - |
| - Interest | 99 | 225 |
| - Administrative services to the Takeovers Panel | 96 | 501 |
| Cash was applied to | ||
| - Suppliers | (4,219) | (3,691) |
| - Employees | (6,814) | (5,205) |
| - Net GST | (42) | 63 |
| Net cash flows from operating activities | (126) | 1,570 |
| Cash flows from investing activities | ||
| Cash was provided from | ||
| - Sale of fixed assets | - | - |
| - Net decrease in term deposits | 900 | 132 |
| - Net decrease in term deposits (litigation) | - | 650 |
| Cash was applied to | ||
| - Purchase of fixed assets | (850) | (154) |
| - Net increase in term deposit | - | - |
| - Net increase in term deposit (litigation) | - | - |
| Net cash flows from investing activities | 50 | 628 |
| Cash flows from financing activities | ||
| Cash was provided from: | ||
| - Repayment of litigation fund Capital | - | (2,066) |
| - | (2,066) | |
| Net increase/(decrease) in cash balances | (76) |
132 |
| Add opening cash and cash equivalents balance | 358 |
226 |
| Closing cash and cash equivalents balance carried forward | 282 |
358 |
| Comprising | ||
| Current account cash and cash equivalents | 39 |
115 |
| Litigation fund cash and cash equivalents | 243 |
243 |
282 |
358 |
The assumptions used in preparing the forecast information were adopted by the Securities Commission on 14 May 2009 and are as follows:
Government grant
We assume a Government grant of $9,121,000 (excl GST) for our operating activities and $600,000 (excl GST) for capital expenditure as appropriated to the Commission. Litigation fund appropriations are $1,370,000 (excl GST).
Administrative services to the Takeovers Panel
We have assumed a recovery of $96,000 for services provided to the Takeovers Panel (Panel). We expect co-location arrangements with the Panel will conclude by October 2009. We budget that the Panel will physically separate to its new offices by October 2009.
Exemptions and authorisations income
We have assumed that our total income from fees and the recovery of costs under the Regulations will be $250,000. We have based this on our historical experience and expect the general historical pattern to apply.
Personnel expenses
We expect 57 staff positions (45.6 full time equivalents).
Litigation expense and fund
We assume expenditure on approved litigation of $843,750. This is based on our most-likely litigation portfolio, arising from anticipated cases to be actioned, modelled on our historical experience. We note the volatility inherent in predicting litigation activity. Actual litigation activity and expenditure may be materially different from forecast.
We estimate a repayment to the Crown of $2,065,317 (GST exempt) being the amount received for recovery of costs following the settlement of the Tranz Rail insider trading case.
Occupancy and other operating costs
We have based our occupancy and other operating costs on our historical experience. We expect the general historical pattern to continue.
Opening position for 2008/09
The 2008/09 estimate is based on management's judgements, estimates and assumptions of the final 2008/09 outcome and is used as the opening position for 2009/10 forecasts. Estimated year end information for 2008/09 is used as the opening position for the 2009/10 forecasts.
Possible changes to our operating environment and future capability
Several aspects of securities regulation are currently under review by the Government. These include:
It is likely that reforms arising from these reviews will affect the Commission within the period of this statement of intent. In particular, if the Commission is given new functions it will need additional resources. We continue to carry out projects to advise the Government on the resource and funding implications associated with the proposed reforms. These projects have sought to quantify the likely funding needs for premises, infrastructure, technology and personnel. The financial implications of the proposed reforms have not been included in the forecast financial statements of this statement of intent.
New law to regulate financial advisers, the Financial Advisers Act (FAA), was passed on 28 September 2008 making the Commission the main regulator of advisers. We continue to carry out estimation projects to identify the likely resource and funding requirements for implementing the FAA beyond 2009/10. The projects seek to quantify the funding and resource (people, technology, infrastructure and personnel) needs. These financial statements reflect the financial implications of the FAA implementation work during 2009/10. All financial implications of FAA implementation beyond 2009/10 are expected to be quantified as part of the estimation projects and have not been included in the forecast financial statements of this statement of intent.
Deficit funding
After several years of building reserves, the Commission is forecasting deficits for 2008/09 and 2009/10 to fund greater work on its existing class of outputs. The deficits will fund greater operational workloads arising mainly from financial reporting, increasing complexity of matters, international recognition and risk management. The Ministry had engaged the services of KPMG to undertake a funding and fees review of the Commission. The final report has been presented by KPMG to the Minister. It supports extra funding for the Commission's existing functions arising from the increasing operational and organisational workloads. The financial implications arising from the KPMG recommendations have not been included in these financial statements.
The forecast financial statements presented here for the reporting entity, the Securities Commission, are prepared pursuant to section 142 of the Crown Entities Act 2004. The Commission is a Crown entity for legislative purposes and a public benefit entity for financial reporting purposes.
These forecast financial statements were authorised for issue by the Commission on 19 June 2008.
These forecast financial statements have been prepared for the special purpose of the 2007/08 statement of intent of the Securities Commission to the Minister of Commerce. They are not prepared for any other purpose and should not be relied upon for any other purpose.
These forecast financial statements have not been reviewed or audited by our auditors, Audit New Zealand.
These forecast financial statements comprise prospective financial information and have been prepared in accordance with New Zealand Financial Reporting Standard No. 42: Prospective Financial Statements (FRS-42). These forecast financial statements are prepared under New Zealand equivalents of International Financial Reporting Standards (NZ IFRS).
The accounting principles recognised as appropriate for the measurement and reporting of results and financial position on a historic cost basis have been applied.
These financial statements are presented in New Zealand dollars, which is the entity's functional currency. All financial information presented has been rounded to the nearest thousand.
The preparation of forecast financial statements in conformity with FRS-42 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual financial results achieved for the period covered are likely to vary from the information presented, and the variations may be material.
The Commission has made the following critical accounting estimates and judgements when preparing these financial statements:
Litigation fund
The Commission estimates a repayment to the Crown of $2,065,317 (GST exempt), being the amount received from the settlement of the Tranz Rail insider trading case for recovery of costs.Impairment on library
The Commission estimates there are no significant impairment issues in respect of the carrying values of its library collection.
The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
Forecast and estimate figures
The forecast and estimate figures are prepared in accordance with generally accepted accounting practice and are consistent with the accounting policies adopted by Commission Members for the preparation of financial statements. The Commission is responsible for the financial statements presented, including the appropriateness of the assumptions underlying the financial statements and all other required disclosure. It is not intended to update these financial statements subsequent to publication of these statements.
Property, plant and equipment
Property, plant and equipment are shown at cost or deemed cost less depreciation and less any impairment losses (see Impairment).
Library collections that were revalued to fair value immediately prior to 1 July 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation.
The following classes of property, plant and equipment have been depreciated over their economic lives on the following bases:
Intangible assets
Computer software that is not integral to the operation of the hardware is recorded as an intangible asset and amortised on a straight line basis over a period of three years.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances on hand and held in bank accounts in which the Commission invests as part of its day-to-day cash management. This includes any short term deposits held by the Commission that have maturities less than or equal to three months.
Term deposits
This category only includes term deposits with maturities greater than three months. These deposits are loans and receivables under NZ IFRS. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method.
Short-term employee benefits
Employee entitlements represent the Commission's liability for employee annual leave entitlements. This has been calculated on an accrued entitlement basis which involves recognising the undiscounted amount of short-term employee benefits expected to be paid in exchange for service that an employee has already rendered. This is calculated at current remuneration rates.
Superannuation schemes
Obligations for employer contributions to the KiwiSaver scheme are accounted for as defined contribution schemes and are recognised as an expense in the statement of financial performance as incurred.
Operating leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term after taking into account any lease inducements.
GST
All items in financial statements are exclusive of GST with the exception of accounts receivable and accounts payable which are stated with GST included.
The statement of cash flows has been prepared on a net GST basis. That is, cash receipts and payments are presented exclusive of GST. A net GST presentation has been chosen to be consistent with the presentation of the statement of financial performance and statement of financial position. The net GST component of operating activities reflects the net GST paid to and received from the Inland Revenue Department. The GST component has been presented on a net basis as the gross amounts would not provide meaningful information for financial statement purposes.
Financial instruments
All financial instruments are recognised in the statement of financial position and all revenues and expenses in relation to financial instruments are recognised in the statement of comprehensive income.
Income tax
The Commission is exempt from income tax under the Income Tax Act 1994.
Revenue recognition
Government grant is recognised as revenue in the year in which it is appropriated. Revenue from application fees and costs recoverable and from administrative services to the Takeovers Panel is recognised when the relevant services are provided.
Interest income is accrued using the effective interest rate method. The effective interest rate exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest income each period.
Cost allocation policy
For the purposes of the statement of forecast service performance direct costs are charged directly to outputs. Indirect costs are allocated on the basis of direct labour hours spent on each output.
Litigation fund
Reimbursements from the Crown to top up the fund are shown as income in the period in which the Commission's claim for reimbursement is accepted by the Crown. The balance of the fund is disclosed as a component of equity in the statement of financial position.
Impairment
The Commission considers at each reporting date whether there is any indication that a non-financial asset may be impaired. If any such indication exists, the asset's recoverable amount is estimated. Given that the future economic benefits of the Commission's assets are not directly related to the ability to generate net cash flows, the value in use of these assets is measured on the basis of depreciated replacement cost.
At each balance date financial assets such as receivables are assessed for impairment. Trade and other receivables are individually assessed for impairment. This assessment is also made with reference to previous experience with debtors. The recoverable amount is the present value of the estimated future cash flows.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount. Any reversal of impairment losses is also recognised in the income statement.
Changes in accounting policy
There have been no changes in accounting policies since the date of the last audited financial statements prepared under NZ IFRS.
However, as required by NZ FRS, the statement of financial performance is now called statement of comprehensive income.
This is done by:
| Performance measures Surveillance and enforcement |
Performance standards | |
|---|---|---|
| 2009/2010 Forecast |
2008/09 Achievements as estimated at 31 March 2009 |
|
| Quantity | ||
| Complete surveillance actions that meet the Commission’s case criteria relating to the above matters | 86 | 110 |
| Complete the enforcement actions that meet the Commission’s case selection criteria, relating to the above matters | 2 | 1 action was completed Proceedings were filed in Court in respect of two finance companies |
| One key area (e.g. finance companies or adviser disclosure statements) is identified, investigated & reported on | N/A (one-off measure for 2008/09 only but may be considered in future years) | 1 – covering investment adviser disclosure |
| Complete the financial reporting surveillance programme | 2 cycles in the year | 2 cycles |
| Quality | ||
| Surveillance & enforcement resources are applied in accordance with the Commission’s market surveillance and enforcement priorities | Full compliance | Full compliance |
| The desired regulatory result is achieved in surveillance cases where deficiencies are identified | 90% | 100% |
| Enforcement actions achieve the desired regulatory result | 80% | 100% – for one action that was completed Progress was made on finance company enforcement and investment adviser disclosure in the year |
| There is no successful judicial review of the Commission’s decisions or actions | 100% | 100% |
| Timeliness | ||
| Complete surveillance actions | On average within 3 months | 5.2 months on average - includes long term jobs that took 12 months plus |
| Progress civil enforcement actions from investigation to the filing of proceedings | On average, within 24 months of commencement of investigation | 17 months |
| Complete other enforcement actions. | On average, within 6 months of action commencing | 4.5 months |
| Complete financial reporting surveillance reporting programme | On average within 9 months of commencing each cycle | 9 months |
| Cost | ||
| Expenditure allocated to surveillance and enforcement work | 35% | 39% |
Maintain oversight of NZX's performance of its regulation function and prepare to undertake new roles under Government reforms.
This is done by:
| Performance measures Oversight and supervision |
Performance standards | |
|---|---|---|
| 2009/2010 Forecast |
2008/09 Achievements as estimated at 31 March 2009 |
|
| Quantity | ||
| Complete NZX oversight review | 1 time in the year | 1 time in the year |
| Advise the Minister on proposed changes to Conduct Rules of the NZX | 2 times in the year | 2 times in the year |
| Consider and comment on continuous disclosure applications under the MOU with the NZX | 6 | 2 |
| Quality | ||
| NZX takes actions in response to recommendation in the Commission’s oversight review reports | NZX responds constructively to recommendations | NZX responded constructively to recommendations |
| The recommendations for the proposed changes to Conduct Rules of the NZX satisfy the Minister | The Minister responds that he is satisfied with the quality of the proposed changes | N/A (new measure) |
| Appropriate resources needed to implement new law for financial advisers are identified and in place | N/A (not a future output measure) | Funding bids for the appropriate resources were submitted during the year |
| Timeliness |
|
|
| Complete NZX oversight review | Within 6 months | Within 6 months |
| Advice is provided to the Minister on approvals of, or proposed changes to, the NZX Conduct Rules within timeframes agreed with the NZX and allowing the Minister to exercise powers within the timeframes specified in the Securities Markets Act 1988 | 100% | 100% |
| The Commission has in place the resources to implement new law for financial advisers | N/A (not a future output measure) | Funding bids for the appropriate resources were submitted during the year |
| Subject to funding, the Commission has in place the people, training, procedures and infrastructure to perform its functions under the financial adviser law when the law comes into force | Implementation of plan is on schedule | N/A (new measure) |
| Cost | ||
| Expenditure allocated to oversight and supervision work | 27% | 14% |
Maintain oversight of NZX's performance of its regulation function and prepare to undertake new roles under Government reforms.
This is done by:
| Performance measures Law and practice reform |
Performance standards | |
|---|---|---|
| 2009/2010 Forecast | 2008/09 achievements as estimated at 31 March 2009 | |
| Quantity | ||
| Make recommendations for securities law reform and improved market practice in accordance with obligations under the Securities Act 1978 and other relevant legislation | The Commission will make recommendations to comply with its obligations under the Securities Act 1978 and with other relevant legislation | The Commission advised the Minister on the proposed trading of Emissions Units in terms of the Securities Act |
The Commission will seek priority for reforms to address
|
The Commission advised the Minister and MED on the proposed Financial Advisers Bill policy |
|
| The Commission’s contributions to law reform will arise in particular from its experience gained in the course of its enforcement work | Advised the Minister on legal issues concerning real estate and securities law | |
| Review exposure drafts of financial reporting and auditing standards, and Financial Reporting Act | Review as required | Reviewed 3 discussion papers, 3 exposure drafts, and 2 existing standards |
| Participate on projects and reviews with the Ministry of Economic Development, other government departments and interested parties | Participation as required | Provided advice and comment to the Minister, MED, and the Finance and Expenditure Committee on the Financial Advisers and Financial Service Providers reforms Provided advice and comment to MED and Minister of Commerce on settlement systems reforms, review of financial products and providers, Securities Disclosure and Financial Advisers Amendment Bill and other recommendations of the Capital Markets Development Taskforce Provided advice and comment to the Ministry of Justice on proposed AML reforms |
| Quality | ||
| The recommendations for securities law reform and improved market practice made in accordance with obligations under the Securities Act 1978 and other relevant legislation, and the quality of advice and assistance on MED reform programmes, satisfy the MED | MED is satisfied with the quality of advice and assistance given | MED is satisfied with the quality of advice and assistance given |
| Timeliness |
|
|
| Provide information and responses to the Ministry of Economic Development and others within agreed timeframes | 100% | 100% |
| Cost | ||
| Expenditure allocated to law and practice reform | 7% | 7% |
| Performance measures Exemptions and authorisations |
Performance standards | |
|---|---|---|
| 2009/2010 Forecast | 2008/09 achievements as estimated at 31 March 2009 | |
| Quantity | ||
| Consider all applications for exemptions and authorisations of market participants | All applications | All applications |
| Review existing exemption notices and authorisations | As required | As required |
| Quality | ||
| The Regulations Review Committee does not recommend disallowance of notices, and notices are not successfully judicially reviewed | 100% | 100% |
| A Statement of Reasons published in each notice explains the policy basis for the exemption | 100% | 100% |
| Proportion of notices issued which comply with the Commission’s internal processes | 100% | 100% |
| Timeliness | ||
| Percentage of exemption applications and authorisations completed within 6 weeks of receiving all necessary information or within other period agreed with applicant | 100% | 100% |
| Cost | ||
| Expenditure allocated to exemptions and authorisations | 7% | 8% |
| Performance measures International cooperation and recognition |
Performance standards | |
|---|---|---|
| 2009/2010 Forecast | 2008/09 achievements as estimated at 31 March 2009 | |
| Quantity | ||
| Take part in the work of IOSCO’s Executive Committee, Asia Pacific Regional Committee, Implementation of Objectives and Principles of Securities Regulation Committee, and the Screening Group | 100% of relevant meetings | 100% of relevant meetings |
| Take opportunities at IOSCO meetings to promote understanding of New Zealand as a well regulated market in which investors can have confidence | 100% of opportunities are taken | 100% of opportunities taken |
| When travelling for IOSCO take opportunities identified with MFAT and NZTE to promote New Zealand to wider business audiences as a well regulated market in which investors can have confidence | Leveraging undertaken in 100% of relevant international destinations visited | 67% of destinations visited |
| Respond to requests from overseas regulators | As required | We responded as required |
| Meet with ASIC | Twice per year | Meetings held in March and April 2009 |
| Meet with overseas regulators and institutional investors | As required | Met with counterpart agencies, NYSE, IASB, IMF and World Bank. Addressed World Federation of Exchanges annual meeting; took part in Financial Stability Forum Asian meeting |
| Contribute towards trans-Tasman initiatives | As required | Contributed towards implementing mutual recognition of securities offering. News release issued |
| Quality | ||
| The Commission will present itself as a constructive and cooperative member of the international community of regulators. Views expressed to IOSCO will take into account the relevant New Zealand values and principles | Presentations include information about NZ’s regulatory environment | Met with and briefed NZTE and MFAT representatives overseas. Participated in Financial Crisis Advisory Group. Met with opinion leaders |
| The Commission makes a positive contribution to the work of IOSCO’s screening group towards IOSCO’s strategic goal for the IOSCO MMOU | IOSCO satisfied with contribution | Contributed to meetings resulting in 3 additional signatories to the IOSCO MMOU and 5 further jurisdictions joining Appendix B of theMMOU With NZAID funding, launched and progressed a technical assistance project helping Papua New Guinea apply to the IOSCO MMOU |
| Cooperative work with ASIC is completed to agreed standards and timeframes | 100% | 100% |
| Timeliness | ||
| Presentations at meetings and responses to committees provided within agreed timeframes | 100% | 100% |
| Contribute towards trans-Tasman initiatives within agreed time | 100% | 100% |
| Obligations under MOUs with overseas regulators are fulfilled in agreed times | 100% | 100% |
| Cost | ||
| Expenditure allocated to international recognition | 13% | 17% |
| Performance measures Output - Public understanding |
Performance standards | |
|---|---|---|
| 2009/2010 Forecast | 2008/09 achievements as estimated at 31 March 2009 | |
| Quantity | ||
| Publish The Bulletin. | 4 issues | 4 issues |
| Deal with inquiries from the public | All inquiries | All inquiries |
| Manage the Commission’s website | Website is available 95% of the time | Website was available 99% of the time |
| Develop and implement public education projects | N/A (not a future measure) | 1 sub-project implemented |
| Communicate significant regulatory actions | 100% | N/A (new measure) |
| Quality | ||
| Readers respond that The Bulletin is interesting and relevant | 95% of survey repondents | N/A |
| Education projects meet their set measures of success. | N/A (not a future measure) | Objectives for sub-project were met |
| Major communications initiatives | 90% of pre-set measures of success for each initiative | N/A (new measure) |
| Inquiries are dealt with effectively | Absence of material complaints | Did not received a material number of complaints |
| Timeliness | ||
| The Bulletin is produced on time. | July/Oct/Jan/April | July/Oct/Jan/April |
| Education projects are carried out to agreed timetables | N/A (not a future measure) | Sub-project milestones achieved |
| Public inquiries are handled within 5 working days of receipt | 95% | 95% |
| New information is published on the website without delay | New information is available on the website within 3 days of receipt | On website within 3 days of receipt by Communications staff |
| Cost | ||
| Expenditure allocated to public understanding | 10% | 8% |
| Performance measures Takeovers Panel |
Performance standards | |
|---|---|---|
| 2009/2010 Forecast | 2008/09 achievements as estimated at 31 March 2009 | |
| Quantity, Quality and Timeliness | ||
| Services are provided as per the MOU between the Panel and the Commission | In accordance with the MOU or any amendments agreed to this. | In accordance with the MOU |
| Cost |
|
|
| Expenditure allocated to Takeovers Panel | 1% | 7% |
2009/10 Forecast $000 |
2008/9 Estimates $000 |
|
|---|---|---|
| Expected revenue | 9,570 |
8,218 |
Proposed expenses |
10,645 |
8,550 |
Operating deficit |
(1075) |
(332) |
| Class of output – Litigation fund | ||
2009/10 Forecast $000 |
2008/9 Estimates $000 |
|
| Expected revenue | 844 |
855 |
| Proposed expenses | 844 |
611 |
| Litigation surplus | - |
44 |
| Class of output – Capital expenditure | ||
2009/10 Forecast $000 |
2008/9 Estimates $000 |
|
| Investment in Securities Commission | 600 |
- |
This information is provided pursuant to section 142(2)(b), Crown Entities Act 2004.